Updated October 18, 2026. Quick answer: The Analysis of Net Income (Loss) per Return takes the net result of Schedule K and splits it by partner type. Schedule M-1 then reconciles the partnership’s book income to that same figure. Line 9 of Schedule M-1 should equal line 1 of the analysis.
What these two schedules do
Both appear on page 6 of the Form 1065 return. The analysis is headed “Analysis of Net Income (Loss) per Return”. Schedule M-1 is headed “Reconciliation of Income (Loss) per Books With Analysis of Net Income (Loss) per Return”. Schedule M-1 is not always required, as the tip on the Schedule L page explains for Schedule B question 4.
Analysis of Net Income (Loss) per Return: line 1
Line 1 reads “Net income (loss). Combine Schedule K, lines 1 through 11.” “From the result, subtract the sum of Schedule K, lines 12 through 13e, and 21”. The pieces are on the Schedule K lines 1 to 4, Schedule K lines 5 to 11, Schedule K lines 12 to 14 and Schedule K lines 15 to 21 pages.
Analysis of Net Income (Loss) per Return: line 2
Line 2 splits line 1 by partner type. The form has columns headed “Corporate”, “Individual” (active and passive), “Partnership”, “Exempt organization” and “Nominee/Other”, with a row for “General partners” and one for “Limited partners”.
“For each type of partner shown on line 2, enter the portion of the amount shown on line 1 that was allocated to that type of partner.” “The sum of the amounts shown on line 2 must equal the amount shown on line 1.” “Report all amounts for LLC members on the line for limited partners.” “Foreign government partners are treated as corporate partners pursuant to section 892(a)(3).”
Classifying individuals as active or passive
The instructions say “In classifying partners who are individuals as active or passive, the partnership should apply the rules below.” Three of the rules are:
- “classify a general partner as active if the partner materially participated in all partnership trade or business activities; otherwise, classify a general partner as passive.”
- “Classify as passive all limited partners in a partnership whose principal activity is a trade or business or rental activity.”
- “If the partnership’s principal activity is a portfolio activity, classify all partners as active.”
The instructions list further rules for oil and gas and rental activities, which are not repeated here.
Tie-outs between the schedules
“In addition, the amount on Analysis of Net Income (Loss) per Return, line 1, must equal the amount on Schedule M-1, line 9 (if the partnership is required to complete Schedule M-1).” “If the partnership files Schedule M-3, the amount on Analysis of Net Income (Loss) per Return, line 1, must equal the amount in column (d) of Schedule M-3, Part II, line 26.”
Schedule M-1 line by line
The form lists lines 1 to 9. Line 1 is “Net income (loss) per books”, line 5 is “Add lines 1 through 4.”, line 8 is “Add lines 6 and 7.” and line 9 is “Subtract line 8 from line 5”. The instructions comment on lines 2, 3, 4b, 7 and 9.
| Line | Form caption | What the instructions say |
|---|---|---|
| Line 2 | “Income included on Schedule K, lines 1, 2, 3c, 5, 6a, 7, 8, 9a, 10, and 11, not recorded on books this year (itemize):” | “Report on this line income included on Schedule K, lines 1, 2, 3c, 5, 6a, 7, 8, 9a, 10, and 11, not recorded on the partnership’s books this year.” “Describe each such item of income.” |
| Line 3 | “Guaranteed payments (other than health insurance)” | “Include on this line guaranteed payments shown on Schedule K, lines 4a and 4b” |
| Line 4b | “Travel and entertainment” | “Entertainment expenses, including entertainment-related meals and facilities, not deductible under section 274(a).” |
| Line 7 | “not charged against book income this year (itemize):” | “Report on this line deductions included on Schedule K, lines 1 through 13e, and 21, not charged against the partnership’s book income this year.” “Describe each such item of deduction.” |
| Line 9 | “Income (loss) (Analysis of Net Income (Loss) per Return, line 1).” | “This line 9 should reconcile to the Analysis of Net Income (Loss) per Return, line 1.” |
For line 2 the instructions add “Attach a statement if necessary.” The instructions list more items for line 4b than are shown here, and a few carry dollar limits that are printed in the instructions’ list, so read that list on the form’s own instruction page.
Schedule M-3 pointer
The form carries this note under the M-1 heading: “The partnership may be required to file Schedule M-3. See instructions.” The instructions say “Schedule M-3 may be required instead of Schedule M-1.” “See the Instructions for Schedule M-3 (Form 1065) for more information.”
Where the number comes from
Line 1 of the analysis comes from the Schedule K lines named in its caption. Schedule M-1 starts from the partnership’s books and records, as the line 1 caption indicates, and each add and subtract line asks for an itemized list of the differences between the books and the return. Line 9 is the result of subtracting line 8 from line 5.
Where it goes next
The analysis total reaches the capital account schedule: “Enter on Schedule M-2, line 3, the amount from the Analysis of Net Income (Loss) per Return, line 1.” See the Schedule M-2 page.
Edition and line numbers
This page reads the 2025 Form 1065 and its 2025 instructions, the current files irs.gov served on 2026-10-18. They are the files for the tax year 2025 return, filed in 2026. Form 1065 carries no “Attach to” caption, so the form’s own title line is the identifier: “U.S. Return of Partnership Income”, with the header “For calendar year 2025, or tax year beginning”. Check the tax year printed on the form you are filling in and use the line numbers on that year’s form, because a different year’s form can number or word its lines differently.
Common mistakes
- Allocating line 1 to partner types without tying out. The instructions say “The sum of the amounts shown on line 2 must equal the amount shown on line 1.”
- Putting LLC members on the wrong row. The instructions say “Report all amounts for LLC members on the line for limited partners.”
- Letting Schedule M-1 end at a different figure from the analysis. The instructions say “This line 9 should reconcile to the Analysis of Net Income (Loss) per Return, line 1.”
Related: Form 1065, Form 1120-S, Schedule K-1 (Form 1065) boxes, and Form 8990.
Sources
- Instructions for Form 1065, U.S. Return of Partnership Income (2025): https://www.irs.gov/pub/irs-pdf/i1065.pdf
- Form 1065, U.S. Return of Partnership Income (2025): https://www.irs.gov/pub/irs-pdf/f1065.pdf
Read from the IRS documents linked above on October 18, 2026. General information, not tax advice. Your own facts decide the outcome, and a preparer, the account provider or the IRS is the right place to confirm anything consequential.